OVERVIEW OF DEFECTIVE CONTRACTS

What is a valid contract

A valid contract possesses the three essential elements of (i) consent, (ii) object, and (iii)
consideration. But there could be other requisite elements. For example, in the case of real contracts
(e.g., commodatum, depositum, and pledge), delivery of its object is an absolute necessity for its
perfection. In the case of formal, the prescribed form is an essential element for validity (e.g.,
donation). In the case of contracts governed by the Statute of Fraud, form is required for
enforceability.

Against these statutory requirements, the validity of a contract is determined. Hence, the absence of
or defect in any of these elements renders a contract defective.

Defective contracts

There are four defective contracts referred to in the Code. The Code presented the defective
contracts based in the degree of defect: the rescissible being (we might say) the least defective, and
the void being the most defective. The defective contracts are as follows.

RESCISSIBLE CONTRACT
(Arts. 1380 – 1389)

The definition of a rescissible contract (Art. 1380) is truly revealing. It describes a rescissible contract
as one that is “validly agreed upon” by the parties. If so, then it would seem to be inappropriate to
classify a rescissible contract as a defective contract. The argument would run as follows: if the
rescissible contract is validly agreed upon, why then should it be considered defective, and why
should it be rescinded or set aside? A contract is the law between the contracting parties, and the
obligation arising from a contract must be fulfilled as a matter of juridical necessity. Accordingly, it
makes no sense to set it aside, except if the contracting parties mutually agreed to do so.

Dr. Tolentino took a different view and cited two reasons to justify the classification of a rescissible
contract as a defective contract. First, a rescissible contract may, by law, be set aside in accordance
with the rules prescribed by the Code. If it can be set aside, it must be defective. Second, the section
of the Code that deals with defective contracts begins with the rescissible contracts. In short, the
Code included the rescissible contract among the defective ones.

Why does the law allow the rescission of a contract that is otherwise validly agreed upon? If a
contract possesses all the essential elements of a valid contract, it would be an aberration of law to
permit a person (whether he be one of the contracting parties or a total stranger to the contract) to
go to court to have it set aside. In this regard, the law permits these contracts to be set aside on
equitable grounds (specifically, the economic damage it caused to a contracting party or to a
stranger) – not on the basis of a legal defect.
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The rescissible contracts

1. A contract entered into by a guardian on behalf of the ward may be rescinded (by or on behalf of
the ward) if the ward suffered lesion (or economic damages) by more than 25% of the fair value
of the object of the contract that was entered into on his behalf by the guardian. Note, however,
that the mere inadequacy of the price does not make a contract defective (Art. 1355). The
consideration which the contracting parties must give to each other need not be equal in value.
The degree of economic damage that justifies rescission in this instance must exceed 25% of the
fair value of the thing that is the object of the contract. This is also true for contracts entered into
by the administrator of the absentee.

2. A contract entered into by an administrator on behalf of an absentee may be rescinded (by the
absentee upon his reappearance, or on behalf of the absentee) if the absentee suffered lesion (or
economic damages) by more than 25% of the fair value of the object of the contract that was
entered into on his behalf by the administrator.

3. A creditor, who is economically damaged by a transaction entered into by the debtor for the
purpose of defrauding him, may seek the rescission of that contract, even if he (the creditor) is
not a party to the transaction which he seeks to rescind. Without a doubt, this provision of law is
an exception to the rule of relativity of contracts (Art. 1311). This is a contract is referred to as a
contract entered into by a debtor in fraud of creditors.

o Onerous contracts entered into by a debtor are presumed fraudulent if a judgment has been
rendered against the debtor (even if not final), or if at the time of the contract a writ of
attachment has been issued against any of his properties (Art. 1387).

o Gratuitous contracts (e.g., contract of donation, condonation of debt, etc.) entered into by a
debtor are preumed fraudulent (and thus rescissible at the instance of a creditor) if the donor
did not reserve sufficient property to pay all his debts contracted and unpaid before the
donation (Art. 1387)

Requisites:

o The creditor seeking rescission must have extended credit to the defendant debtor prior to
the alienation of property. If the alienation took place before the credit was extended, the
creditor could not have been economically damaged by the alienation.

o The debtor made the alienation after he/she has incurred the debt. But where the legality of
the debt is raised by the debtor before the court, and no final judgment has yet been
rendered, an alienation of property prior to the finality of judgment cannot be rescinded
(Siguan v Lim).

o The debtor intended to defraud the creditor. The test of fraud runs as follows: is the
conveyance a bona fide transaction, or is it a trick or contrivance to defeat the creditor’s claim
or to conserve to the debtor a special right? The matter of intention to defraud may be proved
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by circumstantial evidence (Oria v McMicking). Fraud may be demonstrated by the badges of

fraud.

o The result of the conveyance is to make the debtor unable to pay his debt to the creditor. This
is the ultimate proof of fraud. If despite the conveyance the debtor is able to pay his debts,
the conveyance cannot, under any circumstance, be considered as fraudulent.

o The creditor has no other legal means to collect his credit from the debtor. This is because the
remedy of rescission is a remedy of last resort (Art. 1383).

o The transferee acted in collusion with the debtor. This is because a transferee in good faith
and for value is protected by the law (Art. 1385, par 2).

4. If a defendant in a lawsuit, without court approval or consent of the plaintiff, enters into a
contract involving the thing in litigation, the plaintiff may seek the rescission of that contract. The
contract is deemed to have been entered into to cause economic damage or prejudice to the
plaintiff in that if the plaintiff should eventually be adjudged to be entitled to the property sold,
the judgment becomes a paper victory because the property which is due him is already in the
hands of a third person (Ada v Baylon). (Note that in addition to being rescissible, the act of the
defendant in entering into such contract may also constitute contempt of court.)

5. If, while in a state of insolvency, a debtor voluntary pays or prepays (i.e., payment before due
date) a creditor a debt which, at the time of payment, the debtor could not be compelled to pay,
any creditor (other than the payee) may seek the rescission of such unnecessary payment. This is
a case of fraudulent payment or fraudulent prepayment. The premature or unnecessary payment
will create an undue preference or undue advantage to the creditor who was paid, and may
cause damage to the other creditors who, because of the insolvency of the debtor, may be
unable to obtain payment on the due dates of their respective claims. Note that a dacion en pago
is form of payment.

6. Arts.1098, 1539 and 1542 also authorizes rescission in the instances referred to therein.

Consequence of rescission

There are three significant consequences of rescission of contract: (i) the contract is set aside, (ii)
between the contracting parties, there must be mutual restitution, and (iii) the offending party is
liable for damages to the aggrieved party.

Limitations on the power to rescind a contract

o Legal basis – Rescission is available only in the specific instances provided by law. No other
contract may be rescinded.

o Protection to innocent party - If the object of a rescissible contract has fallen into the hands of an
innocent person in good faith and for value, the rescissory action will not prosper, the innocent
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party will be fully protected, but the party entitled to rescission may recover damages from the
party who caused the damage. (Art. 1385, par. 2) This rule tempers the effects of rescission.

o Remedy of last resort - Rescission, being based purely on equity, is a remedy of last resort. It
cannot be invoked if there are other legal means by which an aggrieved party may recover from
the offending party. (Art. 1383)

Thus, in the case of rescissible contracts entered by the guardian of the ward or the administrator
of the absentee, the first recourse must be to secure indemnification from the guardian or the
administrator who entered into the transaction. Note that the guardian and administrator must
post a bond for the faithful performance of their fiduciary responsibilities. Indemnification can be
obtained from the bond. Only if indemnification cannot be obtained may the aggrieved party
seek the rescission of the contract entered into by such guardian or administrator.

In rescinding a contract entered into in fraud of creditors, and in the case of the alienation of a
thing in litigation, the aggrieved creditor must first seek an amicable resolution of the dispute
with the concerned parties, and only after a failure to secure an amicable resolution of the
dispute may a case for the rescission of the contract be filed in court.

In the case of a payment made in the state of insolvency, the aggrieved creditor must first seek
an amicable recovery of the fraudulent payment or prepayment, and only after a failure to secure
an amicable resolution of the dispute may a case for rescission in court be filed in court.

The message is, therefore, crystal clear. The remedy of rescission is an extreme remedy as it will
set aside a contract that is validly entered into, and that the remedy of rescission is merely a
remedy in equity. Therefore, it cannot be used except as a remedy of last resort.

o Limited recovery – Rescission is permitted only to the extent of allowing the plaintiff to recover
the damage cause by the contract (Art. 1384).Therefore, it cannot be assumed that the court will
rescind a contract in its entirety; it is distinctly possible that rescission may be granted only in
part (i.e., without setting aside the entire transaction).

o Mutual restitution – Rescission does not authorize the prevailing party to take undue advantage
of the losing party. Thus, if the rescinded contract involved an exchange of consideration
between the contracting parties, the law requires mutual restitution between them (Art. 1385).
Restitution requires the return of the object of the contract, including its fruits, and the price,
including the interest thereon.

In the case of contracts entered into by a guardian or an administrator which are rescissible on
account of lesion, the restitution is between the parties to the contract to be rescinded; e.g.,
between the ward or absentee, as seller, and the purchaser of the former’s property. In this
instance, the person who seeks the rescission of a contract, if he is entitled to claim restitution,
must be in a position to return what he has received on account of the contract. If he is unable to
make restitution, he cannot ask for the rescission of the contract. The rule in these cases may
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therefore may be restated as follows: if the plantiff is unable to restitute, he can neither ask for
rescission nor demand restitution from the defendant. Restitution is bilateral.

The situation in the case of contracts entered into in fraud of creditors, and contracts involving
things in litigation, is different. The plaintiff who seeks the rescission of the contract is not a
contracting party. In these cases, the restitution shall be between the contracting parties. The
plaintiff that seeks rescission of the contract has nothing to return because, not being a
contracting party and not having received nothing from the rescinded transaction, he has nothing
to account for and to return.

In the case of fraudulent payment or prepayment, the creditor who received payment must
return the money to the payee/debtor, but in turn, his claim against the debtor is reinstated.
Again, the plaintiff who sought to set aside the fraudulent payment is not obliged to restitute as
he received nothing.

o Court-approved contracts – Contracts entered into by guardians and administrators, which are
approved by the court, are not rescissible, it being the theory that the court would have taken
into account the best interest of the ward and/or the absentee (Art. 1386).

o Liability of transferee in bad faith – In a contract entered into in fraud of creditors, the
transferee in bad faith is liable for damages to the plaintiff if, for whatever cause, he is unable to
return the thing he acquired. In contrast, if the transferee was in good faith, he enjoys the full
protection of the law and the property cannot be recovered from him, leaving the plaintiff with
no recourse except against the debtor who fraudulently conveyed the property to the said
purchaser in good faith.

o Statute of Limitation – A rescissory action must be brought within four years (Art. 1389).

VOIDABLE CONTRACT
(Arts 1390 – 1402)

Essentially, the defect of a voidable contract lies in the consent given by one of the contracting
parties, either because (i) the consent of one of them is vitiated by mistake, violence, intimidation,
undue influence, or fraud (see PNB v Philippine Vegetable Oil Co., and Uy Soo Lim v Tan Unchuan), or
(ii) because one of the parties, at the time of the perfection of the contract, did not have the
capacity to give consent. In sum, a voidable contract involves defective consent – an essential
element of a valid contract.

Remedy – The remedy for a voidable contract is an action for annulment of contract. In the
annulment of a contract, the law recognizes that consent was indeed given by the parties. However,
the consent of one of them (not both) is defective. Lack of capacity to give consent may be due to
minority, insanity, prodigality, civil interdiction, etc. The action for annulment must be brought
within four years (Art. 1391).
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Status of a voidable contract prior to annulment – A voidable contract is binding between or among
the parties thereto prior to its annulment. It is not accurate to say that a voidable contract is valid
until it is annulled because; (i) the law specifically states that it is binding – not valid, and (ii) because
if it were a valid contract, there would be no statutory basis for its annulment. (Recall the definition
of a rescissible contract. It is a contract validly agreed upon. Hence, the remedy of rescission is not
based on law, but merely on equity.)

The following principles are important:

o A voidable contract may be ratified by the incapacitated person upon his gaining (or regaining)
capacity, or even during his incapacity, by his legal representative (Art. 1394), without need of
the consent of the party whose has no right to bring the action for annulment (Art. 1395) . It may
also be ratified by the party himself if the defect of the contract emanates from the vitiation of
his consent (Viloria v Continental Airlines). Once ratified, the voidable contract is cleansed from
its defect retroactively to the date it was perfected (Art. 1392). Ratification may be expressed or
implied (Art. 1396).

o The action to seek the annulment of a contract must be brought within the prescriptive period of
four years; otherwise the voidable contract may no longer be assailed and will continue to be
binding between the parties. However, the action for annulment is extinguished if the thing is lost
through the fault or fraud of the person who has a right to institute the action (Art. 1401).

o The annulment of a voidable contract requires the contracting parties to restore to each other
the thing which was the object of the contract, together with its fruits, and the price together
with its interest. Mutual restitution is necessary because the contract is terminated. However:

o If annulment was due to the incapacity of one of the contracting parties, the incapacitated
party is not required to make restitution except to the extent that he was benefitted by the
thing or its price he received for it (Art. 1399).

o If the person obliged to restitute cannot do so because he lost the thing through his fault,
restitution shall be in the form of returning the fruits and the value of the thing at the time it
was lost, with interest thereon from the date of loss (Art. 1401).

o A person who is does not make restitution following the annulment of a contract, cannot
compel the other to comply with his counterpart obligation to make restitution (Art. 1402).

UNENFORCEABLE CONTRACT
(Arts 1403 – 1408)

Nature of unenforceable contracts

Unenforceable means “cannot be enforced.” Recall two basic principles of law. (i) A contract has the
force of law between the contracting parties. If it is the law between them, the contract must, as a
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matter of law, be performed. (ii) An obligation is a juridical necessity to perform a prestation.

Accordingly, an obligation must, as a matter of law, be performed. A contract is one of the sources of
an obligation. In short, the contract and the obligation(s) arising therefrom must, as a matter of law,
be performed.

Hence, if a contract or an obligation is not performed, the law prescribes two alternative remedies
that are available to the aggrieved contracting party: (i) an action for specific performance, with
damages (aggrieved party to compel its performance through the court), and (ii) an action for
rescission, likewise with damages (aggrieved party to seek cancelation of the contract through the
court).

A contract (or an obligation arising therefrom) is worthless unless there are means to compel its
performance. One cannot bind himself to a contract and get away from it, or otherwise breach it
with impunity. Any arrangement whereby a contracting party is licensed to refuse to perform his
obligation thereunder is not a contract, pursuant to the principle of mutuality of contracts.

What are the unenforceable contracts

The law, however, makes certain contracts unenforceable by court action. These are:

o The unauthorized contracts, or those which are entered into by one person on behalf of another,
without the consent or authority of the latter, unless subsequently ratified by the person whose
consent or authorization is required. In this instance, consent to the contract was given for the
true party in interest, albeit the person who gave consent does not have the authority to
represent the former in the transaction. (See Neri v Heirs of Yusop, and Iglesia Filipina
Independiente v Heirs of Taeza)

o Contracts that do not comply with the requirements of the statute of fraud; and

o Contracts between incapacitated persons, unless ratified by or on behalf of the incapacitated

person(s) (Art. 1407). Note that consent given by an incapacitated person does not produce legal
effect, unless ratified by him upon gaining or regaining capacity, or in his behalf by his legal
representative. If the unenforceable contract is ratified as to only one of the incapacitated
parties, the unenforceable contract is converted into a voidable one. If the unenforceable
contract is ratified as to both parties, the unenforceable contract becomes a valid contract.

Perhaps these unenforceable contracts may be described as contracts which have all the essential
requisites, but which the law does not permit enforcement by means of court action unless they are,
in the meantime, ratified. Thus, these contracts exist, and the law recognizes their existence; but the
law denies their enforcement by way of an action for specific performance. (Note that any other
action in relation to these contract is not barred by law.)

Statute of fraud (SOF)

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The SOF is a law that requires certain contracts, for the purpose of their enforceability, must be
reduced into writing – or at the very least, to reduce into a written memorandum signed by the
parties thereto, the essential terms and conditions thereof. As to the form of the memorandum, see
Swedish Match v Court of Appeals.

Under the SOF, the written agreement, or the written memorandum thereof, duly signed by the
parties, is the only admissible evidence of the terms and conditions of the contract. In short, the
contracts covered by the SOF cannot be proved by parol (oral) evidence.

The legal term “unenforceable” means that a person who seek to enforce the covered agreement
cannot maintain in court, against his counterparty, an action for specific performance. Thus, the
obligation arising from a contract that is not compliant with the SOF can only be fulfilled if the party
obliged would voluntary perform it. His failure, refusal, or omission to perform the obligation cannot
be the basis for filing a case against him for specific performance.

Limitations on the application of the SOF

There are three important limitations on the application of the SOF.

o Only an action for specific performance is barred ; an action for rescission, due to the non-
performance of the obligation is not barred. Note that an unenforceable contract is a binding
contract; it is not a nullity. Thus, a party to a contract that is not compliant with the SOF, but
which is otherwise governed by the SOF, may bring an action against his counterparty to compel
the latter to reduce such contract into the form required by the SOF (Art. 1357 in relation to Art.
1406),

o The invocation of the SOF is a matter of defense in an action for specific performance. A party
sought to be compelled to perform an obligation under a contract governed by the SOF is
required to timely object to any question that the plaintiff may raise that seeks to prove the
contract and the terms thereof. Therefore, if the defendant fails to make a timely objection to the
question, the defense under the SOF is deemed waived or abandoned, the contract is deemed
ratified (Art. 1405), and oral evidence shall be permitted to establish not only the existence of
that contract, but also the terms and conditions thereof.

o The SOF applies only to purely executory contracts (i.e., contracts where the obligations of the
parties have yet to be performed). It does not apply to contracts that have been fully or partially
performed. The theory is that parties are not likely to forget, or to plausibly forget an obligation
that has been partly performed – let alone the fact that partial performance can be proved by
competent evidence. (See Carbonnel v Poncio.)

Purpose of the SOF

Before going over the contracts that are governed by the SOF, it is important to understand the
purpose of the law; i.e., to deter the perpetration of fraud and the commission of the crime of
perjury. In not so many words, the SOF aims to stress one fundamental rule, i.e., not to leave to the
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frail memory of man the agreed terms and conditions of the contracts referred to in Art. 1403(2).
The SOF insists that insofar as these contracts are concerned, the terms and conditions have to be
reduced into writing.

This requirement is not without merit. Consider the contracts governed by the SOF:

(a) an agreement that by its terms is not to be performed within a year from the making thereof
(would not the deferral of performance likely to lead a person to conveniently forget his verbal
deferred commitment, particularly if his obligation has become more onerous or less advantageous
after the lapse of time?);

(b) a special promise to answer for the debt, default or miscarriage of another (would not a
guarantor conveniently forget his verbal guaranty after a call is made on him to make good his
commitment following the default of the debtor? Remember that the guarantor will be made to pay
a debt that he did not incur nor did he benefit from.)

(c) an agreement made in consideration of marriage, other than a mutual promise to marry (would
not a promisor who made a verbal promise (to give or to do something) in consideration of marriage
conveniently forget the promise after the marriage has been celebrated?) See Domalagan v Bolifer.

(d) an agreement for the sale of goods, chattels and things in action at a price of not less than P500,
unless there is at least a partial fulfilment of either or both obligations of the parties; (would not a
party to a verbal contract of sale conveniently forget it or the terms thereof should it eventually turn
out that he made a bad bargain?)

(e) a lease agreement for a term longer than one year, or the sale of property or an interest therein;
(would not a long-term lessor or lessee conveniently forget the conditions of a long-term verbal
lease if in the meantime the lease turns out to be disadvantageous to him?) and

(f) a representation as to the credit of another person (would not a representer conveniently forget
that he verbally assured a creditor of the creditworthiness of the debtor, after the debtor has renege
on his obligation to pay?).

Thus, in the foregoing contracts, the SOF requires a written evidence of the contract in order to
forestall a party from conveniently forgetting his verbal contractual commitment, or to prevent a
party from perjuring himself when interrogated as regards the existence of the verbal contract or
the terms and conditions thereof. With the written evidence of the agreement, the printed words
cannot be contradicted by oral declarations. Written words are more reliable that the recollection of
a person. (See Limketkai v Court of Appeals)

Clearly the SOF avoids a situation where a court has to determine the true verbal agreement of the
parties in the light of their conflicting claims (he says, she says situation). (See Heirs of Leandro v
Natividad.)

Who may assail an unenforceable contract

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Unenforeceable contracts cannot be assailed by third persons who are strangers to the contract, and
therefore have no interest therein. Only contracting parties and persons who have an interest in an
unenforceable contract may assail it (e.g., a contracting party, the representative of a contracting
party, as in the case of a contract entered into by two incapacitated persons.) Recall the rule of
privity of contracts.

VOID CONTRACT
(Arts 1409 – 1422)

Causes of nullity of contracts

A contract is void due to any of the following causes:

1. Fatal defect of its object – The object refers to the thing or service which must be delivered or
performed pursuant to the contract. If the object does not exist, the contract is void (Art.
1409(3). Take note, however, that a future thing (i.e., a thing that has yet to exist, but has the
possibility of existence, or a thing that the obligor has yet to acquire) may be the object of a
contract of sale. In this regard, read and understand the case of Nicolas v Mariano where the
court ruled that a person cannot sell something which he does not own. Understand that the
object of the contract of sale, in this case, cannot be considered a sale of future property.

o If the object is an illegal thing or service, the contract is void (Art. 1409(5). (See Peña v de los
Santos.)

o If the object is outside the commerce of man Art. 1409(4)), the contract is void.

2. Want of consent – The meeting of the minds of the contracting parties which is reflected by their
consent thereto, perfects the contract. Thus, if there is no consent given by one or both of the
parties, or if the parties did not intend to be bound by the contract (as in absolutely simulated
contracts), the contract is void. (Art. 1409(2). See Clemente v Court of Appeals, and Tanchuling v
Cantela.)

However, the burden of proving the simulation of contract falls on those who impugn its
regularity and validity. A failure to discharge this duty results in the upholding of the contract
(Reyes v Asuncion).

3. If the intention of the parties relative to the object of the contract cannot be ascertained, the
contract is void. Assume that the object of a written contract is a parcel of land, but from reading
the contract the intention of the parties with respect to that parcel of land cannot be ascertained
(as in hopelessly vague), the contract is void. (Art. 1409(6))
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4. Want of consideration – A contract requires valuable consideration. If there is none, or if the

consideration is illegal (and therefore outside the commerce of man) there is no contract. (Art.
1409(1))

However, a consideration in a contract of sale that is grossly disproportionate to the value of the
object thereof (the property sold), which resulted from the undervaluation of the consideration,
does not make the contract void (Sta. Fe Realty v Sison). Neither does undervaluation of the
consideration indicative of a simulated contract.

5. Contracts that are expressly declared void by law (Art. 1409(7) – An example would be a contract
involving future inheritance (Art. 1347, see also Tingalan v Sps. Melliza).

Consequences of nullity of contract

o A void contract produces no effect, whether in favour or against either party (Tingalan v Sps.
Melliza). It creates no rights and imposes no obligation. The contract does not exist (Fullido v
Grilli). This rule is true even in void contracts where the parties are mutually at fault (in pari
delicto) (Nicolas v Mariano). However, notwithstanding mutual fault, the law will not
countenance either party to be unjustly enriched at the expense of the other, and thus, the party
who would be unjustly enriched may be ordered to recompense the aggrieved party (Gonzalo v
Tarnate).

o If the nullity proceeds from the illegality of the consideration or object of the contract, and the
act constitutes a criminal offense, both parties being in pari delicto, they shall have no cause of
action against each other (Art. 1411). Thus, the purchase and sale of property known to the
parties to have been stolen will expose them to criminal liability. One cannot sue the other for
specific performance. The stolen property shall be confiscated and returned to its rightful owner.
If only one of the parties is aware of the illegality, the innocent party may recover what he has
given, and he will not be bound to comply with his obligation (technically speaking, the innocent
party is entitled to the cancelation of the contract).

o If the contract has an unlawful or forbidden object, but it does not constitute a crime: (Art. 1412)

o both parties being at fault, neither may recover from the other nor demand the performance
of the undertaking of the other. The law will leave them where they are. Both guilty parties
are punished.

o If only one is at fault, he can neither recover what he has given nor demand performance from
the innocent party, but the innocent party may recover what he has given without need of
complying what he has undertaken. Only the guilty party is punished.

General principle of void contracts

o They cannot be ratified (Art. 1409) because these contracts do not even exist under the law.
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o The defense of nullity of contract (particularly when a contracting party is sued to enforce it)
cannot be waived (Art. 1409), which means that the defense of nullity is available at any time.

o The action or defense for the declaration of nullity of a contract does not prescribe (Art. 1410).
The defense of prescription of action is based on the assumption that the plaintiff has a lawful
claim that can be asserted on the defendant. He must enforce such claim in a timely manner.
Thus, if there is no lawful claim to begin with, there is nothing which the plaintiff should enforce
promptly.

o If public interest is served, the law allows a party to recover the money or property he has given
for an illegal purpose if he repudiates the contract before the purpose is achieved, or before
damage is caused to a third person (Art. 1414). Thus, a party who desisted from an unlawful
contract before it is consummated is spared from punishment by allowing him to recover what he
has given. This rule tempers the effects of an illegal contract, which is no recovery.

o If an incapacitated person enters into an illegal contract, he may be permitted to recover what he
has given, if the interest of justice is served. The incapacitated person is spared from the
consequence of illegality, which is no recovery (Art. 1415). Note the concession granted to the
incapacitated.

o In the case of prohibited contract (which is not illegal per se) and the prohibition is for the
protection of the plaintiff, he may recover that he has delivered if public policy is enhanced (Art.
1416). An example would be the recovery of an excessive donation which would cause the donor
to be unable to support himself and those who depend upon him for support (Art. 750).

o The defense of illegality of contract cannot be invoked by a person whose interest is not directly
affected by the void contract (Art. 1421). The basis is lack of standing to challenge the void
contract.

o A contract which is the direct result of an illegal contract is also void (Art. 1422). An example
would be a preparatory contract which is illegal. The contract that follows this void preparatory
contract is likewise void. In short, a void contract cannot give rise to anything but a void contract
as well. The fruit of a poisoned tree is likewise poisoned.